- The venture capital landscape for AI startups has become more focused and selective.
- Investors are starting to gain confidence and make choices in picking platforms for their future investments.
- There is a debate between buying or building AI solutions, with some seeing value in large companies building their own AI properties.
- With the proliferation of AI startups, venture capitalists are finding it harder to choose which ones to invest in.
- Startups that can deliver real, measurable impact and have a working product are more likely to attract investors.
Main topic: Decreased venture funding for crypto companies and increased interest in secondary deals.
Key points:
1. Global venture funding for crypto companies fell by 78% in the first half of the year compared to the same period last year.
2. Crypto-focused venture capitalists still have ample funds and are increasingly buying shares in secondary deals.
3. Shares of previously high-valued crypto startups are being sold at significant discounts in secondary transactions.
Main topic: The U.S. Small Business Administration plans to invest billions into venture capital funds to support startups in underserved areas and industries crucial to national security.
Key points:
1. The move aims to modernize the U.S. investment landscape and diversify venture capital investment beyond popular sectors.
2. The program will focus on addressing market gaps and investing in perceived riskier territories.
3. The SBA has allocated up to $6.9 billion for fiscal 2024 to provide substantial funding support.
Main topic: Chinese startups could miss American know-how and intangible benefits due to restrictions on U.S. venture capital flowing to China.
Key points:
1. President Biden signed an executive order to block American dollars from funding Chinese companies developing AI, semiconductor, and quantum computing technologies with military applications.
2. The proposed regulations would also restrict Chinese startups' access to intangible benefits offered by U.S. tech giants and venture capital firms, such as managerial assistance and access to talent networks.
3. While the restrictions may impact Chinese startups' access to American expertise, some investors believe that China's investment ecosystem has been attracting investors from other countries who can provide similar benefits.
Main topic: Decline in venture capital funding for Latin American startups
Key points:
1. Latin American startups experienced a 70% YoY decline in venture capital funding during Q2.
2. Funding for Latin American startups totaled $800 million in Q2, compared to $2.6 billion in the same period last year.
3. Fintech sector in Mexico led the way in terms of investment, with companies like Clara and Kapital securing significant funding rounds.
Main topic: Decline in venture capital (VC) funding for cryptocurrency startups
Key points:
1. Crypto startups secured the lowest amount of VC funding ($2.3 billion) since Q4 2020 in Q2 2021.
2. Regulatory concerns and crypto market volatility have contributed to the decline in VC funding.
3. Reduced VC funding could hinder innovation and intensify competition among startups in the crypto sector.
Main topic: Declining valuations and potential contraction in the late-stage venture market for startups
Key points:
1. Valuations across startup stages have sharply declined, with a more significant decline in later stages.
2. A sharper decline in late-stage dealmaking could make it harder for Series B and C companies to raise pre-IPO capital.
3. A smaller late-stage market could benefit the wider tech market by filtering out weaker startups and promoting faster recycling of human capital.
In July, capital inflows from venture capitalists in the crypto sector decreased by 10.26%, with $700 million raised, as macroeconomic conditions and geopolitical events continued to impact investment decisions, although some notable outliers, such as Polychain Capital and CoinFund, launched new funds totaling millions of dollars, and the potential approval of spot Bitcoin exchange-traded funds (ETFs) in the U.S. could bring renewed attention and capital into the industry. Infrastructure and Web3 sectors received the most capital inflows, while overall investor activity in the blockchain industry remained low, suggesting a slow return to a steady upward trend.
Despite Chinese companies committing over a billion dollars to share buybacks, these efforts have failed to restore confidence in the struggling market, as foreign investors continue to sell off Chinese stocks due to concerns over the property market and other factors.
The lack of funding for emerging managers in venture capital is impacting early-stage funding opportunities, as VC fundraising decreases and the number of new startups declines, but there is a slight thaw in exits via public markets with promising IPOs from companies like Cava.
China's regulators are struggling to attract global funds to invest in the country's stocks due to a lack of strong stimulus measures to support growth, resulting in a slump in the MSCI China Index and significant outflows from the mainland market.
Chinese investors are flocking to investment products with exposure to overseas assets, such as exchange traded funds (ETFs) and mutual funds, in order to diversify their portfolios amidst a weak stock market, geopolitical risks, and a falling currency, with a record number of 38 Qualified Domestic Institutional Investor (QDII) funds launched this year.
The American venture market has been experiencing a significant decline in technology IPOs, but the recent filings of public-offering paperwork by Instacart and Klaviyo stand out as important milestones in a market that has seen a lack of startup exits for over 1.5 years.
US companies are becoming increasingly hesitant to invest in China due to concerns over new anti-spying laws, competition from state-funded firms, and the country's economic challenges such as deflation and a property crisis.
China is launching a new state-backed investment fund worth $40 billion to boost its semiconductor sector and catch up with the US and other rivals, with a focus on chip manufacturing equipment.
Global venture funding in August 2023 reached $22 billion, a 19% increase from the previous month but a 16% decrease from July 2022, with late-stage funding experiencing a year-over-year increase for the first time in 18 months, according to Crunchbase data. However, early-stage funding nearly halved and seed funding was down by around one-third compared to the previous year, while deal counts in August 2023 were almost half of the previous year. The largest fundings were in transportation, sustainability, and biotechnology, and the hope for the startup funding landscape lies in upcoming IPOs of well-funded venture-backed companies.
Weak governance and poor disclosure practices in China's corporate sector are causing international money managers to become increasingly wary of investing in the country, potentially leading to limited access to financing and higher borrowing costs for Chinese companies in the future.
Despite the hype around AI-focused companies, many venture-backed startups in the AI space have experienced financial struggles and failed to maintain high valuations, including examples like Babylon Health, BuzzFeed, Metromile, AppHarvest, Embark Technology, and Berkshire Grey. These cases highlight that an AI focus alone does not guarantee success in the market.
Fidelity's China fund is outperforming its competitors by investing in the country's big internet names, which are predicted to continue performing well, while value investing is also becoming popular in China.
Venture capital funding has significantly declined, with global funding nearly half of what it was last year, leading to a shift towards AI funds; however, the overall VC market is still far from its peak in 2021-2022, as higher interest rates and supply chain shortages create an unfavorable environment for investors.
Investors have pulled £10 billion from Chinese stocks as China's economy continues to decline, with declining exports and struggling real estate contributing to the turmoil.
Funds are rapidly leaving Chinese stocks and bonds, reducing China's influence on global portfolios and contributing to its decoupling from the rest of the world, as concerns over China's economic slump, property market crisis, and tensions with the West heighten.
Summary: U.S. stocks slumped amid mixed sentiment about the economy, with only the Dow Jones Industrial Average rising for the week, while Asia-Pacific markets mostly fell, and China's venture capital investment dropped by 31.4% compared to 2022 due to its sluggish economy and geopolitical tensions discouraging foreign investors.
China experienced its largest capital outflow since 2015, with $49 billion leaving the country, as economic concerns prompt investors to withdraw; of this, $29 billion was withdrawn from securities investments, including bonds. The outflow was compounded by a record-high $12 billion in mainland-listed stocks being dumped by foreign investors and a $16.8 billion deficit in direct investment, the largest since 2016. The decline in the capital account was exacerbated by the tourism season, with outbound travel negatively impacting the services sector, while inbound travel remained suppressed, causing a continued deficit in the services trade. Efforts by Beijing, such as reducing the foreign currency reserves held by banks, have aimed to support the yuan but have been unable to prevent a significant decline in the offshore yuan. Weak exports and the allure of US yields have also contributed to the yuan's decline, further complicating China's capital flight situation, as doubts about the country's ability to achieve its 5% GDP target for the year grow.
U.S. companies are losing confidence in China and some are limiting their investments due to tensions between the two countries and China's economic slowdown.
Hundreds of thousands of Chinese investors are at risk of losing their investments with Zhongzhi Enterprise Group and its trust banking arm, Zhongrong, as these companies have missed payments to investors, fueling concerns of a potential collapse of one of China's largest shadow banks.
Chinese stocks, including Alibaba Group, are seeing gains as the company plans to file for an initial public offering for its logistics business, Cainiao Network Technology, which could be the first of many IPOs from Alibaba's subsidiaries, and as reports suggest that the Chinese government may loosen restrictions on foreign investors owning stakes in Chinese companies.
Chinese investors are rushing to sell their overseas properties, particularly in Southeast Asia, due to worsening financial conditions and the need for cash to solve domestic issues such as business failures and mortgage loan defaults. Uncertain economic conditions, low confidence in production and consumption, and tightening regulations on property developers in China have contributed to the struggle to offload these investments.
Venture capital investments in the Middle East have been booming, particularly in deep tech startups focusing on Web3 applications, blockchain, and carbon control, with UAE-based Fuze securing $14 million in seed funding, Cultos Global receiving an undisclosed sum, and Zero Carbon Ventures obtaining $5 million, signaling the region's rising role in innovation and change.
Venture capital investments into web3 startups declined in the third quarter, marking the seventh consecutive quarter of declines since crypto venture fundraising peaked in Q4 2021.
The global market for initial public offerings (IPOs) is showing signs of recovery after an 18-month slump, with emerging markets accounting for a significant share of the money raised and number of IPOs, driven by economic growth and increased interest from investors in local and regional companies; however, major IPO markets such as the US, Europe, and the UK have struggled this year due to factors such as high interest rates, regulatory restrictions, and reduced investor appetite for risky bets.
Despite a challenging market backdrop in the third quarter, the equity capital markets saw robust activity with several successful IPOs and a significant increase in sponsor monetization offerings, signaling positive momentum for future market activity.
Global venture funding in Q3 2023 reached $73 billion, marking a slight increase from the previous quarter but a 15% decline compared to the same period in 2022, with seed and early-stage funding continuing to decline while late-stage funding increased, particularly in strategic sectors such as semiconductors, AI, electric vehicles, and sustainability. The IPO markets also showed signs of easing, with two venture-backed startups going public in September for the first time in 18 months. Additionally, AI companies raised over $10 billion in Q3, and late-stage funding saw growth outside of North America, particularly in Asia and Europe. However, the global funding slowdown persisted, with a 42% decline year over year in the first three quarters of 2023.
Stocks and crypto are down following Hamas' attack in Israel, China is investing in AI infrastructure, YC experiences changes, and Wanda Fish Technologies and Lottie raise millions in funding in the startup world.
The global venture capital market continued to decline in the third quarter of 2023, according to data visualization provided by TechCrunch+.
Venture capital funds are showing reduced interest in crypto, with investments reaching their lowest levels in over a year, but there are still crypto-native investors actively deploying capital and showing faith in the industry. The overall downturn in the market and regulatory uncertainty are contributing factors, pushing investors to conduct thorough due diligence and prioritize projects with tangible credibility and mainstream adoption potential.
While venture funding in Asia declined 8% from Q3 last year, it increased by 8% from the previous quarter, with China and Israel driving the growth despite geopolitical tensions, according to Crunchbase data. Chinese startups raised $14.1 billion in Q3, a 20% increase from Q2, possibly fueled by significant funding rounds for EV and semiconductor companies. Israeli startups also had a strong quarter, raising $1.4 billion, supported by investments in cybersecurity and AI. However, India's venture funding decreased by 34%, and South Korea saw a drastic 40% decline.
